Introduction

Abstract

How much can governments borrow from private markets? As governments across the developed world struggle with the fiscal consequences of the recent financial crisis, the view that they could borrow ‘as much as they wish’ (Griffith-Jones 1991: 117) has been supplanted by questions indicating far greater constraint and less certainty: Why are markets refusing Greece further lending with government debt at 115 per cent of Gross Domestic Product (GDP), while Japan approaches debt levels of twice GDP with little evidence of market concern? Will other European countries, some with government debt levels similar to those of Greece, share Greece’s difficulties, with all the implications that might entail for the future of the European Union? Are the UK government or the opposition correct in their claims on the market’s requirements regarding the speed of deficit reduction? Even in countries not facing an outright refusal by markets to lend further, the government’s capacity to borrow — to spend in excess of income — has become a key influence on government policy. The Financial Times (22 April 2009) put the situation facing the then British Chancellor of the Exchequer starkly: ‘he cannot open the [spending] taps — the markets will not let him’. After the United Kingdom’s inconclusive 2010 election, the leading civil servant advised the haggling politicians that the markets would require a government with a parliamentary majority, and therefore a coalition.